Let's take a look at some of the specific changes this year.
- Taxes: The Social Security employee tax will remain at 7.65 percent (6.2 percent for FICA and 1.45 percent for the Medicare Hospital Insurance Tax) for those covered by full Social Security (employees under the Federal Employees Retirement System and Civil Service Retirement System-Offset). CSRS employees are only subject to the 1.45 percent Medicare tax. Even though the tax rate will remain the same, the amount of wages subject to the FICA tax will break the six-figure threshold to $102,000 next year, up from $97,500 in 2007. This means that employees who earn more than $102,000 and who pay the 6.2 percent FICA tax will pay an additional $279 next year. The Medicare tax applies to all wages.
- Quarter of Coverage: The amount of earnings required to earn a quarter's worth of Social Security coverage in 2008 will increase to $1,050, up from $1,000 in 2007. For those who already have more than the 40 quarters (sometimes referred to as "credits") of earnings required to be eligible for Social Security, this change won't mean anything. But for individuals with less than 40 quarters, it will take an additional $200 in earnings in 2008 to pick up four more quarters.
- Earnings Limit: The earnings limit for Social Security beneficiaries under the full retirement age (65 to 67, depending on year of birth) and for people receiving the FERS Retirement Supplement will be $13,560 in 2008, up from $12,960 last year. Once earnings exceed this limit, the benefit is reduced by $1 for every $2 over the limit. There is no limit on earnings beginning the month an individual reaches full retirement age. More information about the earnings test is available here and you can find more on the full benefit age for Social Security here.
Medicare Part B
- The monthly premium for Part B, covering physician care and outpatient services, will be $96.40 in 2008, an increase of $2.90, or 3.1 percent, from the $93.50 premium for 2007. This premium represents only 25 percent of the cost of Part B; the government pays the rest for most Medicare beneficiaries. The 2008 rise is the smallest percentage increase in the Part B premium since 2000.
- As in 2007, about 4 percent of Part B enrollees with higher incomes will pay a higher premium based on income this year. In 2008, if you file your taxes as "married, filing jointly" and your modified adjusted gross income is more than $164,000, you will pay a higher premium. For all other taxpayers, if your modified adjusted gross income is more than $82,000, you will pay a higher premium.
CSRS and FERS
Here's the rundown on annual changes to the two federal retirement systems:
- Basic Benefits: CSRS survivor annuity benefits and CSRS retirement annuity benefits were increased by 2.3 percent on Jan. 1. FERS basic retirement annuity benefits and FERS survivor annuity benefits were increased by 2 percent.
- Variable Interest Rate: The rate for service credit payments, refunds and voluntary contributions will be 4.75 percent for 2008, down from 4.875 percent in 2007. To learn more about interest on service credit payments and voluntary contributions, see these columns: Buying Retirement Credit (Feb. 10, 2006), Redepositing CSRS Funds (Feb. 17, 2006), Military Service Payback (Feb. 24, 2006) and Voluntary Benefits (May 5, 2006).
- Children's Survivor Annuities: These payments increased 2.3 percent on Jan. 1. The 2008 rate for a child with one parent surviving will be about $444 per month. A child with neither parent living will receive about $532 per month. The benefit of a surviving child of a FERS employee or retiree will be offset by the Social Security children's benefit, if payable.
- Death Benefits: When a FERS employee dies, a surviving spouse (or former spouse) may be eligible for the basic employee death benefit. This is equal to 50 percent of the employee's final annual pay (or high-three average pay, if higher) plus a $15,000 payment that is increased annually by CSRS cost-of-living adjustments. For deaths that occur between Dec. 1, 2007, and Nov. 30, 2008, that payment will be $28,093.
Thrift Savings Plan
The Internal Revenue Service annual limit on what employees can contribute to their thrift accounts will be $15,500 for tax year 2008, the same as in 2007. FERS employees need to be sure not to exceed the $15,500 limit before the end of the year so they won't lose matching agency contributions. Some employees will have 27 pay periods in 2008 instead of 26. You can find additional information on these limits on the TSP Web site. The limit on catch-up contributions for 2008 also remains unchanged at $5,000.
Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.